On Tuesday morning, Robson Andrade, president of the Brazilian Confederation of Industries (CNI), was arrested as part of a Federal Police investigation into corruption allegations connected to the “Sistema S” —a group of non-profit organizations run by the private sector, which promote educational and cultural activities across the country.

Mr. Andrade, along with other business owners, is accused of having overpriced contracts for the “Dolls of the World” cultural festival, organized by the Industry Social Service (SESI) in the northeastern city of Recife.

SESI is run by industry employers’ unions (such as the CNI) and promotes cultural and sporting activities, as well as health initiatives. It is one of nine such organizations which make up the Sistema S. Though administered by the private sector, the Sistema S is publicly funded, receiving a yearly transfer of over BRL 17 billion from the state—half of the entire budget destined for the Bolsa Familia welfare cash transfer program.

Besides SESI, the Sistema S is made up of the following organizations:

  • Commerce Social Service (SESC): similar to SESI, but run by commerce unions, promoting activities related to culture, health and sport, as well as concerts;
  • Transport Social Service (SEST): similar to SESI, but run by the transport sector;
  • National Industrial Learning Service (SENAI): run by industry unions and providing training courses and professional qualification;
  • National Commercial Learning Service (SENAC): similar to SENAI, run by commerce unions;
  • National Rural Learning Service (SENAR): similar to SENAI, run by the agriculture sector;
  • National Cooperativism Learning Service (SESCOOP): similar to SENAI, run by cooperatives and credit unions;
  • National Transport Learning Service (SENAT): similar to SENAI, run by the transport sector;
  • Small Business Support Service (SEBRAE): fosters the development of micro and small businesses.

    sistema s money

    The Sistema S —around since the 1940s and consistently receiving large amounts of money from the government— was recently thrust into the spotlight, with new Minister of the Economy Paulo Guedes threatening to go after the system’s funding. Brought in to shrink costs and stabilize the economy, Mr. Guedes is pondering cuts to the Sistema S yearly transfer of up to 50 percent.

In a meeting with business leaders, Mr. Guedes railed against the system, complaining that budgets were being reduced in all sorts of other sectors, asking “why can’t we cut the Sistema S?”

Don’t mess with the S

Previous governments have tried, and failed, to curb the public money spent on the Sistema S. Its backers are very powerful indeed, with strong lobbies that make any sort of interference very difficult indeed.

In 2015, a proposal to cut the Sistema S budget by 30 percent was met with outrage from the industry and commerce sectors. Paulo Skaf, president of the Federation of Industries of São Paulo (FIESP, an employers’ union), threatened to “go to war” with the sitting government. It was then no surprise that Mr. Skaf and FIESP led the massive street demonstrations calling for the impeachment of then-president Dilma Rousseff.

For months, FIESP displayed a massive inflatable duck outside its headquarters on Avenida Paulista—São Paulo’s busiest street. The duck represented the union’s slogan against Ms. Rousseff’s government: Não vamos pagar o pato! —literally “we won’t pay the duck,” the Portuguese equivalent of “we won’t pay the piper.” The duck became an indelible symbol of the protests.

duck fiesp brazil impeachment dilma

Paulo Skaf and the duck

Paulo Skaf is an excellent illustration of how things work in employers’ unions and the Sistema S. Despite several frustrated attempts at being elected to public office in São Paulo, he has never had any problem holding control of FIESP, where he has been continually elected president for the last 15 years.

Due to the hegemonic structures and lack of oversight within the employers’ unions that control the system, it should come as no surprise to know that Tuesday’s arrest of Robson Andrade is not the first suspicion of corruption leveled against the Sistema S.

Despite the huge amount of public funds pumped into the Sistema S, it is a thoroughly opaque organization—thanks in part to being state-funded, but not state-owned. Having been around for over 70 years, only in 2013 were organizations from the Sistema S forced to publish their accounts and other information about their activities.

Despite these demands, the Federal Accounts Court (TCU), which oversees public spending, has complained that very few of the organizations carry out any internal or external auditing.

As a result, several employers’ union leaders have faced corruption allegations and charges concerning the funds from the Sistema S. In Rio de Janeiro alone, heads of transport and commerce employers’ unions were arrested for forming part in the massive, serpentine corruption scheme promoted by former governor Sérgio Cabral. A web of corruption which involved millions misapplied from the Sistema S.

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BY Euan Marshall

Euan Marshall is a Scottish journalist living in São Paulo. He is co-author of A to Zico: An Alphabet of Brazilian Football.